4Q21 core net loss of -RM106.6m (QoQ: -RM16.7m, YoY: -RM6.5m) and FY21 core net loss of -RM254.7m completely missed ours and consensus full-year net loss forecasts of -RM176.3m and -RM161.9m respectively due to: (i) lower than expected work activity and billings; and (ii) additional cost provisions recognised for on-going projects. We believe that the group will require more consistent job replenishments and increased work activity to reach its breakeven revenue. With that, we maintain our SELL recommendation with an unchanged TP of RM0.35 pegged to 0.3x FY21F P/B.

Completely missed expectations. 4Q21 core net loss of -RM106.6m (QoQ: -RM16.7m, YoY: -RM6.5m) and FY21 core net loss of -RM254.7m completely missed ours and consensus full-year net loss forecasts of -RM176.3m and -RM161.9m respectively due to: (i) lower than expected work activity and billings; and (ii) additional cost provisions recognised for on-going projects. Our FY21 core profit was adjusted mainly for an impairment loss of RM9.0m.

QoQ. MMHE recorded a wider core net loss of -RM106.6m (from -RM16.7m). The group attributed the weaker performance to additional cost provisions for its Heavy Engineering segment’s on-going projects (which we believe to be its Kasawari and Jerun projects).

YoY. MMHE recorded a higher core net loss of -RM106.6m (from -RM6.5m). We believe that this is due to: (i) weaker performance from MMHE’s Marine segment due to reduced number of LPG repair and absence of conversion work caused by the prolonged border restrictions; and (ii) additional cost provisions for its Heavy Engineering segment’s on-going projects (which we believe to be its Kasawari and Jerun projects).

YTD. Core net loss widened to -RM254.7m in FY21 from -RM114.3m in FY20 due to additional cost provisions recognised for the group’s projects for the Heavy Engineering segment.

Going green. MMHE has installed an 8.3 MWp solar panel for its yards and it is expected to result in RM30m of cost savings over 20 years, in-line with its goals to reduce its carbon emissions.

Outlook. Current orderbook stands at RM2.2bn as of end-Dec 2021. The group has a tenderbook of about RM13bn as at December 2021. We remain apprehensive on the prospects of MMHE despite its recent Jerun CPP contract win as we believe that the group will require more consistent job replenishments and increased work activity to breakeven. Also, we do not discount the possibility of further cost overruns or delivery delays for its current projects despite its higher orderbook backlog.

Forecast. Unchanged. While we think the group’s performance should improve in FY22, we believe that that the group will require more consistent job replenishments and increased work activity to breakeven.

Maintain SELL, TP: RM0.35. We maintain SELL with an unchanged TP of RM0.35 based on 0.3x FY21F P/B, which is at a 30% discount to its 5-year historical mean P/B. We believe we would need to see more consistent job replenishments and increased work activity for MMHE in order for us to warrant a re-rating on our call.

Source: Hong Leong Investment Bank Research - 14 Feb 2022